(Together with Report of Independent Registered Public Accounting Firm)

Report of Independent Registered Public Accounting Firm

OptimumBank Holdings, Inc.

Fort Lauderdale,
Florida:

We have audited the accompanying consolidated balance sheets of OptimumBank Holdings, Inc. and Subsidiary (the
Company) as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders equity, and cash flows for the years then ended. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2011 and 2010, and the results
of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Use of Estimates. In preparing consolidated financial statements in conformity with U.S. generally accepted
accounting principles (GAAP), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the
valuation of foreclosed real estate, and the deferred tax asset.

(continued)

7

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1)

Summary of Significant Accounting Policies, Continued

Cash and Cash Equivalents. For purposes of the
consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks, interest-bearing deposits and federal funds sold, all of which mature within ninety days.

The Company may be required by law or regulation to maintain cash reserves in the form of vault cash or in accounts with other banks.
There were no reserve balances required at December 31, 2011 and 2010.

Securities.
Securities may be classified as either trading, held to maturity or available for sale. Trading securities are held principally for resale and recorded at their fair values. Unrealized gains and losses on trading securities are included immediately
in operations. Held to maturity securities are those which management has the positive intent and ability to hold to maturity and are reported at amortized cost. Available for sale securities consist of securities not classified as trading
securities nor as held to maturity securities. Unrealized holding gains and losses on available for sale securities are reported as a net amount in accumulated other comprehensive loss in stockholders equity until realized. Gains and losses on
the sale of available for sale securities are determined using the specific-identification method. Premiums and discounts on securities are recognized in interest income using the interest method over the period to maturity.

Loans. Loans that management has the intent and ability to hold for the foreseeable future or until
maturity or pay-off are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs.

Commitment fees and loan origination fees are deferred and certain direct origination costs are capitalized. Both are recognized as an adjustment of the yield of the related loan.

The accrual of interest on loans is discontinued at the time the loan is ninety days delinquent unless the loan is well collateralized and
in process of collection. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

(continued)

8

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1)

Summary of Significant Accounting Policies, Continued

Loans, Continued. All interest accrued but not collected
for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual
status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to operations. Loan losses are
charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. There were no changes in the Companys accounting policies or methodology
during the year ended December 31, 2011.

The allowance for loan losses is evaluated on a regular basis by management and
is based upon managements periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. For
such loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loans are lower than the carrying value of those loans. The general component covers all other loans and is based
on historical loss experience adjusted for qualitative factors.

The historical loss component of the allowance is determined
by losses recognized by portfolio segment over the preceding two years. The historical loss experience is adjusted for the risks by each portfolio segment. Risk factors impacting loans in each of the portfolio segments include: economic trends and
conditions; experience, ability and depth of lending management; national and local political environment; industry conditions and trends in charge-offs; and other trends or uncertainties that could affect managements estimate of probable
losses.

(continued)

9

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1)

Summary of Significant Accounting Policies, Continued

Allowance for Loan Losses, Continued. A loan is
considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due. Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the
borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for single-family and commercial real estate, land and construction and multi-family
real estate loans, and consumer loans, by either the present value of expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is
collateral-dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.

Foreclosed Real Estate. Real estate acquired through, or in lieu of, loan foreclosure is to be sold and is
initially recorded at fair value less estimated selling costs at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of the new
cost basis or fair value less cost to sell. Revenue and expenses from operations are included in the consolidated statements of operations.

Premises and Equipment. Land is stated at cost. Buildings and improvements, furniture, fixtures, equipment, and leasehold improvements are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization expense are computed using the straight-line method over the estimated useful life of each type of asset or lease term, if shorter.

Preferred Securities of Unconsolidated Subsidiary Trust. On September 30, 2004, the Company acquired
the common stock of OptimumBank Holdings Capital Trust I (Issuer Trust), an unconsolidated subsidiary trust. The Issuer Trust used the proceeds from the issuance of $5,000,000 of its preferred securities to third-party investors and
common stock to acquire a $5,155,000 debenture issued by the Company. This debenture and certain capitalized costs associated with the issuance of the preferred stock comprise the Issuer Trusts only assets and the interest payments from the
debentures finance the distributions paid on the preferred securities. The Company recorded the debenture in Junior Subordinated Debenture and its equity interest in the business trust in Other Assets on the consolidated
balance sheets (See Note 7).

The Company has entered into agreements which, taken collectively, fully and unconditionally
guarantee the preferred securities of the Issuer Trust subject to the terms of the guarantee.

(continued)

10

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1)

Summary of Significant Accounting Policies, Continued

Transfer of Financial Assets. Transfers of financial
assets or a participating interest in an entire financial asset are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated
from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over
the transferred assets through an agreement to repurchase them before their maturity. A participating interest is a portion of an entire financial asset that (1) conveys proportionate ownership rights with equal priority to each participating
interest holder (2) involves no recourse (other than standard representations and warranties) to, or subordination by, any participating interest holder, and (3) does not entitle any participating interest holder to receive cash before any
other participating interest holder.

Income Taxes. There are two components of income tax
expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company
determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and
enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods.

Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or
sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets
the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full
knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to
managements judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

On January 1, 2009, the Company adopted accounting guidance relating to accounting for uncertainty in income taxes, which sets out a
consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions. As of December 31, 2011, management is not aware of any uncertain tax positions that would have a material effect on the
Companys consolidated financial statements.

The Company recognizes interest and penalties on income taxes as a component
of income tax expense.

(continued)

11

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1)

Summary of Significant Accounting Policies, Continued

Income Taxes, Continued. The Holding Company and the Bank
file a consolidated income tax return. Income taxes are allocated proportionately to the Holding Company and the Bank as though separate income tax returns were filed.

Advertising. The Company expenses all media advertising as incurred. Media advertising expense included in
other noninterest expenses in the accompanying consolidated statements of operations was approximately $9,800 and $10,100 during the years ended December 31, 2011 and 2010, respectively.

Stock Compensation Plan. The Company has adopted the fair value recognition method and expenses the fair
value of any stock options as they vest. Under the fair value recognition method, the Company recognizes stock-based compensation in the accompanying consolidated statements of operations.

Loss Per Share. Basic loss per share is computed on the basis of the weighted-average number of common
shares outstanding. In 2011 and 2010, basic and diluted loss per share is the same due to the net loss incurred by the Company. All amounts reflect the one-for-four reverse stock split declared in October 2010. Loss per common share has been
computed based on the following:

Year Ended December 31,

2011

2010

Weighted-average number of common shares outstanding used to calculate basic and diluted loss per common share

4,576,304

819,358

Off-Balance-Sheet Financial Instruments. In the ordinary course of business
the Company may enter into off-balance-sheet financial instruments consisting of commitments to extend credit. Such financial instruments are recorded in the consolidated financial statements when they are funded.

Fair Value Measurements. Fair value is the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires the Company to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy describes three levels of inputs that may be used to measure fair value:

Level 2: Inputs other than quoted prices that are observable for the asset or liability,
either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable
or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.

Level 3: Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon
the best information at the time, to the extent that inputs are available without undue cost and effort.

The following
describes valuation methodologies used for assets measured at fair value:

Securities Available for Sale.Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds, certain mortgage products and exchange-traded equities. If
quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of such instruments, which would generally be classified
within Level 2 of the valuation hierarchy, include certain collateralized mortgage and debt obligations and certain high-yield debt securities. In certain cases where there is limited activity or less transparency around inputs to the valuation,
securities are classified within Level 3 of the valuation hierarchy. Securities classified within Level 3 include certain residual interests in securitizations and other less liquid securities.

Impaired Loans. The Companys impaired loans are normally collateral dependent and, as such, are carried at the lower of the
Companys net recorded investment in the loan or fair market value of the collateral less estimated selling costs. Estimates of fair value are determined based on a variety of information, including the use of available appraisals, estimates of
market value by licensed appraisers or local real estate brokers and the knowledge and experience of the Companys management related to values of properties in the Companys market areas. Management takes into consideration the type,
location and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value. Accordingly, fair value estimates for impaired loans are classified as Level 3.

Foreclosed Real Estate. Estimates of fair values are determined based on a variety of information, including the use of available
appraisals, estimates of market value by licensed appraisers or local real estate brokers and the knowledge and experience of the Companys management related to values of properties in the Companys market areas. Management takes into
consideration the type, location and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value. Accordingly, the fair values estimates for foreclosed real estate are
classified as Level 3.

(continued)

13

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1)

Summary of Significant Accounting Policies, Continued

Fair Values of Financial Instruments. The following
methods and assumptions were used by the Company in estimating fair values of financial instruments disclosed herein:

Cash and Cash Equivalents. The carrying amounts of cash and cash equivalents approximate their fair value.

Securities. Fair values for securities are based on the framework for measuring fair value established by GAAP.

Federal Home Loan Bank Stock. Fair value of the Companys investment in Federal Home Loan Bank stock is based on its
redemption value, which is its cost of $100 per share.

Loans. For variable-rate loans that reprice frequently
and have no significant change in credit risk, fair values are based on carrying values. Fair values for fixed-rate loans, including fixed-rate residential and commercial real estate and commercial loans, are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

Deposit Liabilities. The fair values disclosed for demand, NOW, money-market and savings deposits are, by definition, equal
to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for fixed-rate time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on time
deposits to a schedule of aggregated expected monthly maturities of time deposits.

Federal Home Loan Bank Advances and
Junior Subordinated Debenture. Fair values of Federal Home Loan Bank advances and junior subordinated debenture are estimated using discounted cash flow analysis based on the Companys current incremental borrowing rates for similar
types of borrowings.

Off-Balance-Sheet Financial Instruments. Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties credit standing.

(continued)

14

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1)

Summary of Significant Accounting Policies, Continued

Comprehensive Loss. GAAP generally requires that
recognized revenue, expenses, gains and losses be included in net loss. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity
section of the consolidated balance sheets, such items along with net loss, are components of comprehensive loss. The only component of other comprehensive loss is the net change in the unrealized loss on the securities available for sale. The
components of accumulated other comprehensive loss are as follows (in thousands):

Year Ended December 31,

2011

2010

Unrealized holding losses during the year

$

(785

)

0

Reclassification adjustment for gains realized in operations

(153

)

0

Net amount

$

(938

)

0

Recent Pronouncements. In April 2011, the Financial Accounting Standards
Board (FASB) issued ASU 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements, which applies to all entities. It affects all entities that enter into agreements to transfer
financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The amendments do not affect other transfers of financial assets. ASU 2011-03 removes from the assessment of effective
control, the criterion relating to the transferors ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. It also eliminates the requirement to demonstrate that the
transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. Eliminating the transferors ability criterion and related implementation guidance from an entitys assessment of
effective control should improve the accounting for repurchase agreements and other similar transactions. ASU 2011-03 was effective for interim or annual periods beginning on January 1, 2012 and is to be applied prospectively to transactions or
modifications of existing transactions that occur on or after the effective date. The adoption of this guidance did not have a material impact on the Companys consolidated financial statements.

(continued)

15

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1)

Summary of Significant Accounting Policies, Continued

Recent Pronouncements, Continued. In May 2011, the FASB
issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 applies to all reporting entities that are required or permitted to
measure or disclose the fair value of an asset, a liability, or an instrument classified in a reporting entitys shareholders equity in the financial statements. ASU 2011-04 is expected to result in common fair value measurement and
disclosure requirements in U.S. GAAP and IFRSs. Consequently, it changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the
requirements of ASU 2011-04, it is not intended for the amendments to result in a change in the application of the requirements in Topic 820. Some of the amendments clarify the application of existing fair value measurement requirements. Other
amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements, including the following: (1) measuring the fair value of financial instruments that are managed within
a portfolio; (2) application of premiums and discounts in a fair value measurement; and (3) additional disclosures about fair value measurements. ASU 2011-04 was effective for interim and annual periods beginning on January 1, 2012
and is to be applied prospectively. The adoption of this guidance did not have a material impact on the Companys consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220). The amendments in this update remove the option to present the components of other comprehensive income as part
of the statement of changes in stockholders equity. ASU No. 2011-05 was effective for interim and annual periods, beginning on January 1, 2012. The adoption of this guidance did not have a material impact on the Companys
consolidated financial statements.

(2)

Securities

Securities have been classified according to managements intent. The carrying amount of
securities and approximate fair values are as follows (in thousands):

AmortizedCost

GrossUnrealizedGains

GrossUnrealizedLosses

FairValue

At December 31, 2011:

Securities Available for Sale-

Mortgage-backed securities

$

29,845

$

202

$

(1,140

)

$

28,907

Securities Held to Maturity-

State of Israel bond

$

100

$

0

$

0

$

100

At December 31, 2010:

Securities Held to Maturity:

Mortgage-backed securities

$

50,957

$

130

$

(2,348

)

$

48,739

State of Israel bond

100

0

0

100

$

51,057

$

130

$

(2,348

)

$

48,839

(continued)

16

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(2)

Securities, Continued

The following summarizes sales of securities (in thousands):

Year Ended December 31,

2011

2010

Proceeds from sales of securities

$

10,961

$

44,869

Gross gains from sale of securities

153

1,492

Gross losses from sale of securities

0

(142

)

Net gains from sale of securities

$

153

$

1,350

In June 2011, the Company transferred securities with a book value of approximately
$50.5 million from the held to maturity category to the available for sale category. The fair value of the securities was $49.8 million resulting in unrealized losses of approximately $0.7 million. The net unrealized loss was recorded in accumulated
other comprehensive loss. Due to this transfer, the Company will be prohibited from classifying securities as held to maturity for a period of two years.

During the year ended December 31, 2010, the Company sold twenty-two securities in order to downsize and deleverage its balance sheet. This action was taken in an effort to comply with a significant
increase in the regulatory capital requirements imposed on the Bank under a Consent Order issued by the FDIC and State of Florida Office of Financial Regulation (OFR) (see Note 14).

Securities with gross unrealized losses at December 31, 2011, aggregated by investment category and length of time
that individual securities have been in a continuous loss position, is as follows (in thousands):

Less Than Twelve Months

Over Twelve Months

GrossUnrealizedLosses

FairValue

GrossUnrealizedLosses

FairValue

Mortgage-backed securities

$

8

$

259

$

1,132

$

13,517

(continued)

17

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(2)

Securities, Continued

Management evaluates securities for other-than-temporary impairment at
least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. A security is impaired if the fair value is less than its carrying value at the financial statement date. When a security is impaired, the
Company determines whether this impairment is temporary or other-than-temporary. In estimating other-than-temporary impairment (OTTI) losses, management assesses whether it intends to sell, or it is more likely than not that it will be
required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized in operations. For securities that
do not meet the aforementioned criteria, the amount of impairment recognized in operations is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive loss. Management utilizes
cash flow models to segregate impairments to distinguish between impairment related to credit losses and impairment related to other factors. To assess for OTTI, management considers, among other things, (i) the severity and duration of the
impairment; (ii) the ratings of the security; (iii) the overall transaction structure (the Companys position within the structure, the aggregate, near-term financial performance of the underlying collateral, delinquencies, defaults,
loss severities, recoveries, prepayments, cumulative loss projections, and discounted cash flows); and (iv) the timing and magnitude of a break in modeled cash flows.

The unrealized losses on ten investment securities were caused by market conditions. It is expected that the securities
would not be settled at a price less than the book value of the investments. Because the decline in fair value is attributable to market conditions and not credit quality, and because the Company has the ability and intent to hold these investments
until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

In evaluating mortgage-backed securities with unrealized losses greater than 12 months, management utilizes various resources, including input from independent third party firms to perform an analysis of
expected future cash flows. The process begins with an assessment of the underlying collateral backing the mortgage pools. Management develops specific assumptions using as much market data as possible and includes internal estimates as well as
estimates published by rating agencies and other third-party sources. The data for the individual borrowers in the underlying mortgage pools are generally segregated by state, FICO score at issue, loan to value at issue, and income documentation
criteria. Mortgage pools are evaluated for current and expected levels of delinquencies and foreclosures, based on where they fall in the prescribed data set of FICO score, geographics, LTV and documentation type, and a level of loss severity is
assigned to each security based on its experience. The above-described historical data is used to develop current and expected measures of cumulative default rates as well as ultimate loss frequency and severity within the underlying mortgages. This
reveals the expected future cash flows within the mortgage pool. The data described above is then input to an industry recognized model to assess the behavior of the particular security tranche owned by the Company. Significant inputs in this
process include the structure of any subordination structures, if applicable, and are dictated by the structure of each particular security as laid out in the offering documents. The forecasted cash flows from the mortgage pools are input through
the security structuring model to derive expected cash flows for the specific security owned by the Company to determine if the future cash flows are expected to exceed the book value of the security. The values for the significant inputs are
updated on a regular basis.

(continued)

18

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(2)

Securities, Continued

The key base assumptions for mortgage-backed securities used are in the
table below:

At December 31,

2011

2010

Prepayment rate

9-58

% PSA

12-69

% PSA

Loss severity

2-140

%

27-68

%

Cumulative default rate

0.51-9.16

%

0.81-6.04

%

Principal write-down

0-.81

%

0-.04

%

Loss severity rates are estimated based on collateral characteristics for single family
first mortgages.

During the years ended December 31, 2011 and 2010, no securities were transferred
in or out of Level 1, Level 2 and Level 3.

(continued)

19

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(3)

Loans

The components of loans are as follows (in thousands):

At December 31,

2011

2010

Residential real estate

$

31,142

$

40,130

Multi-family real estate

4,109

4,213

Commercial real estate

44,312

55,119

Land and construction

11,783

17,292

Consumer

175

358

Total loans

91,521

117,112

Add (deduct):

Net deferred loan fees, costs and premiums

45

133

Allowance for loan losses

(2,349

)

(3,703

)

Loans, net

$

89,217

$

113,542

An analysis of the change in the allowance for loan losses for the years ended
December 31, 2011 and 2010 follows (in thousands):

ResidentialRealEstate

Multi-FamilyRealEstate

CommercialRealEstate

LandandConstruction

Consumer

Total

Year Ended December 31, 2011:

Beginning balance

$

1,285

$

282

$

1,542

$

514

$

80

$

3,703

(Credit) provision for loan losses

(779

)

(42

)

(6

)

755

(77

)

(149

)

Charge-offs

(308

)

0

(202

)

(1,229

)

0

(1,739

)

Recoveries

368

7

0

147

12

534

Ending balance

$

566

$

247

$

1,334

$

187

$

15

$

2,349

Year Ended December 31, 2010:

Beginning balance

$

2,049

$

489

$

1,466

$

5,227

$

132

$

9,363

Provision (credit) for loan losses

878

(64

)

2,405

510

(84

)

3,645

Charge-offs

(1,663

)

(154

)

(2,330

)

(5,223

)

(54

)

(9,424

)

Recoveries

21

11

1

0

86

119

Ending balance

$

1,285

$

282

$

1,542

$

514

$

80

$

3,703

(continued)

20

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(3)

Loans, Continued

The Company has divided the loan portfolio into five portfolio
segments, each with different risk characteristics and methodologies for assessing risk. The portfolio segments identified by the Company are as follows:

Real Estate Mortgage Loans.Real estate mortgage loans are typically segmented into four categories: residential real estate, multi-family real estate, commercial real estate, and
land and construction. Residential real estate loans are underwritten in accordance with policies set forth and approved by the Board of Directors (the Board), including repayment capacity and source, value of the underlying property,
credit history and stability. Multi-family and commercial real estate loans are secured by the subject property and are underwritten based upon standards set forth in the policies approved by the Companys Board. Such standards include, among
other factors, loan to value limits, cash flow coverage and general creditworthiness of the obligors. Construction loans to borrowers finance the construction of owner occupied and leased properties. These loans are categorized as construction loans
during the construction period, later converting to commercial or residential real estate loans after the construction is complete and amortization of the loan begins. Real estate development and construction loans are approved based on an analysis
of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. Real estate development and construction loan funds are disbursed periodically based on the
percentage of construction completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. Development and construction loans are typically secured by the properties under
development or construction, and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely on the value of the underlying property, the Company considers the market conditions and feasibility of proposed
projects, the financial condition and reputation of the borrower and guarantors, the amount of the borrowers equity in the project, independent appraisals, cost estimates and pre-construction sales information. The Company also makes loans on
occasion for the purchase of land for future development by the borrower. Land loans are extended for future development for either commercial or residential use by the borrower. The Company carefully analyzes the intended use of the property and
the viability thereof.

Consumer Loans. Consumer loans are extended for various purposes, including purchases of
automobiles, recreational vehicles, and boats. Also offered are home improvement loans, lines of credit, personal loans, and deposit account collateralized loans. Repayment of these loans is primarily dependent on the personal income of the
borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower(s), the purpose of the credit, and
the secondary source of repayment. Consumer loans are made at fixed and variable interest rates and may be made on terms of up to ten years. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large
number of borrowers.

(continued)

21

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(3)

Loans, Continued

The balance in the allowance for loan losses and the recorded
investment in loans by portfolio segment and based on impairment method as of December 31, 2011 and 2010 follows (in thousands):

Residential

Multi-Family

Commercial

Land

Real

Real

Real

and

Estate

Estate

Estate

Construction

Consumer

Total

At December 31, 2011:

Individually evaluated for impairment:

Recorded investment

$

7,919

$

0

$

16,716

$

7,241

$

68

$

31,944

Balance in allowance for loan losses

$

0

$

0

$

11

$

0

$

0

$

11

Collectively evaluated for impairment:

Recorded investment

$

23,223

$

4,109

$

27,596

$

4,542

$

107

$

59,577

Balance in allowance for loan losses

$

566

$

247

$

1,323

$

187

$

15

$

2,338

At December 31, 2010:

Individually evaluated for impairment:

Recorded investment

$

12,608

$

0

$

21,215

$

10,649

$

249

$

44,721

Balance in allowance for loan losses

$

0

$

0

$

11

$

75

$

0

$

86

Collectively evaluated for impairment:

Recorded investment

$

27,522

$

4,213

$

33,904

$

6,643

$

109

$

72,391

Balance in allowance for loan losses

$

1,285

$

282

$

1,531

$

439

$

80

$

3,617

(continued)

22

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(3)

Loans, Continued

The following summarizes the loan credit quality (in thousands):

Pass

OLEM(Other LoansEspeciallyMentioned)

Substandard

Doubtful

Loss

Total

At December 31, 2011:

Residential real estate:

Closed-end first mortgages

$

19,296

$

3,686

$

5,001

$

0

$

0

$

27,983

Closed-end second mortgages

3,159

0

0

0

0

3,159

Total residential real estate

22,455

3,686

5,001

0

0

31,142

Multi-family real estate

4,109

0

0

0

0

4,109

Commercial real estate:

Owner-occupied

11,755

2,012

369

0

0

14,136

Non-owner-occupied

12,204

2,764

15,208

0

0

30,176

Total commercial real estate

23,959

4,776

15,577

0

0

44,312

Land and construction

4,493

49

7,241

0

0

11,783

Consumer:

Non-real estate secured

0

68

0

0

0

68

Real estate secured

107

0

0

0

0

107

Total consumer

107

68

0

0

0

175

Total

$

55,123

$

8,579

$

27,819

$

0

$

0

$

91,521

At December 31, 2010:

Residential real estate:

Closed-end first mortgages

$

23,542

$

3,697

$

9,691

$

0

$

0

$

36,930

Closed-end second mortgages

3,200

0

0

0

0

3,200

Total residential real estate

26,742

3,697

9,691

0

0

40,130

Multi-family real estate

4,213

0

0

0

0

4,213

Commercial real estate:

Owner-occupied

12,960

1,238

1,837

0

0

16,035

Non-owner-occupied

18,042

3,638

17,404

0

0

39,084

Total commercial real estate

31,002

4,876

19,241

0

0

55,119

Land and construction

4,976

1,667

10,649

0

0

17,292

Consumer:

Non-real estate secured

99

0

151

0

0

250

Real estate secured

108

0

0

0

0

108

Total consumer

207

0

151

0

0

358

Total

$

67,140

$

10,240

$

39,732

$

0

$

0

$

117,112

(continued)

23

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(3)

Loans, Continued

Internally assigned loan grades are defined as follows:

Pass  a Pass loans primary source of loan repayment is satisfactory, with secondary sources very likely to be realized
if necessary. These are loans that conform in all aspects to bank policy and regulatory requirements, and no repayment risk has been identified.

OLEM (Other Loans Especially Mentioned)  an Other Loan Especially Mentioned has potential weaknesses that deserve managements close attention. If left uncorrected, these potential
weaknesses may result in the deterioration of the repayment prospects for the asset or the Companys credit position at some future date.

Substandard  a Substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a
well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful  a loan classified Doubtful has all the weaknesses inherent in one classified Substandard, with the added
characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. This classification does not mean that the asset has absolutely no
recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. The Company fully charges off any loan classified as Doubtful.

Loss  a loan classified Loss is considered uncollectible and of such little value that continuance as a bankable
asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be
affected in the future. The Company fully charges off any loan classified as Loss.

(continued)

24

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(3)

Loans, Continued

Age analysis of past-due loans is as follows is as follows (in
thousands):

Accruing Loans

30-59DaysPast Due

60-89DaysPast Due

GreaterThan 90DaysPast Due

TotalPastDue

Current

NonaccrualLoans

TotalLoans

At December 31, 2011:

Residential real estate:

Closed-end first mortgages

$

0

$

768

$

0

$

768

$

22,214

$

5,001

$

27,983

Closed-end second mortgages

0

0

0

0

3,159

0

3,159

Subtotal

0

768

0

768

25,373

5,001

31,142

Multi-family real estate

0

0

0

0

4,109

0

4,109

Commercial real estate:

Owner-occupied

0

0

0

0

13,767

369

14,136

Non-owner-occupied

0

0

0

0

14,968

15,208

30,176

Subtotal

0

0

0

0

28,735

15,577

44,312

Land and construction

0

0

0

0

4,542

7,241

11,783

Consumer:

Non-real estate secured

0

0

0

0

68

0

68

Real estate secured

0

0

0

0

107

0

107

Subtotal

0

0

0

0

175

0

175

Total

$

0

$

768

$

0

$

768

$

62,934

$

27,819

$

91,521

At December 31, 2010:

Residential real estate:

Closed-end first mortgages

$

0

$

0

$

0

$

0

$

27,239

$

9,691

$

36,930

Closed-end second mortgages

0

0

0

0

3,200

0

3,200

Subtotal

0

0

0

0

30,439

9,691

40,130

Multi-family real estate

0

0

0

0

4,213

0

4,213

Commercial real estate:

Owner-occupied

0

0

0

0

14,198

1,837

16,035

Non-owner-occupied

3,195

0

0

3,195

20,881

15,008

39,084

Subtotal

3,195

0

0

3,195

35,079

16,845

55,119

Land and construction

0

0

0

0

9,449

7,843

17,292

Consumer:

Non-real estate secured

99

0

0

99

0

151

250

Real estate secured

0

0

0

0

108

0

108

Subtotal

99

0

0

99

108

151

358

Total

$

3,294

$

0

$

0

$

3,294

$

79,288

$

34,530

$

117,112

(continued)

25

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(3)

Loans, Continued

The following summarizes the amount of impaired loans (in thousands):

At December 31, 2011

At December 31, 2010

RecordedInvestment

UnpaidPrincipalBalance

RelatedAllowance

RecordedInvestment

UnpaidPrincipalBalance

RelatedAllowance

With no related allowance recorded:

Residential real estate-

Closed-end first mortgages

$

7,919

$

8,465

$

0

$

12,608

$

14,272

$

0

Commercial real estate:

Owner-occupied

369

376

0

1,837

1,857

0

Non-owner-occupied

15,208

17,584

0

18,204

20,466

0

Land and construction

7,241

11,652

0

9,980

15,018

0

Consumer-

Non-real estate secured

68

68

0

249

249

0

With an allowance recorded:

Commercial real estate-

Non-owner-occupied

1,139

1,139

11

1,174

1,174

11

Land and construction

0

0

0

669

669

75

Total:

Residential real estate-

Closed-end first mortgages

$

7,919

$

8,465

$

0

$

12,608

$

14,272

$

0

Commercial real estate:

Owner-occupied

$

369

$

376

$

0

$

1,837

$

1,857

$

0

Non-owner-occupied

$

16,347

$

18,723

$

11

$

19,378

$

21,640

$

11

Land and construction

$

7,241

$

11,652

$

0

$

10,649

$

15,687

$

75

Consumer-

Non-real estate secured

$

68

$

68

$

0

$

249

$

249

$

0

Total

$

31,944

$

39,284

$

11

$

44,721

$

53,705

$

86

The average net investment in impaired loans and interest income recognized and received
on impaired loans are as follows (in thousands):

For the Year Ended December 31,

2011

2010

AverageRecordedInvestment

InterestIncomeRecognized

InterestIncomeReceived

AverageRecordedInvestment

InterestIncomeRecognized

InterestIncomeReceived

Residential real estate-

Closed-end first mortgages

$

11,077

$

226

$

306

$

7,081

$

20

$

35

Multi-family real estate

$

0

$

0

$

0

$

387

$

0

$

0

Commercial real estate:

Owner-occupied

$

443

$

0

$

1

$

1,266

$

0

$

4

Non-owner-occupied

$

18,419

$

115

$

375

$

15,279

$

267

$

366

Land and construction

$

7,412

$

21

$

147

$

9,965

$

26

$

253

Consumer-

Non-real estate secured

$

198

$

5

$

5

$

9

$

0

$

0

Total

$

37,549

$

367

$

834

$

33,987

$

313

$

658

(continued)

26

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(3)

Loans, Continued

The following is a summary of loans determined to be troubled debt
restructurings during the year ended December 31, 2011 (dollars in thousands):

NumberofContracts

Pre-ModificationOutstandingRecordedInvestment

Post-ModificationOutstandingRecordedInvestment

Troubled Debt Restructurings:

Residential real estate-

Modified interest rate and amortization

1

$

1,540

1,540

Commercial real estate-

Modified interest rate and amortization

4

5,915

5,915

Land and construction-

Modified interest rate and amortization

1

1,030

1,030

6

$

8,485

8,485

The allowance for loan losses on residential real estate, commercial real estate, and
land and construction loans that have been restructured and are considered trouble debt restructurings (TDR) is included in the Banks specific reserve. The specific reserve is determined on a loan by loan basis by either the
present value of expected future cash flows discounted at the loans effective interest rate, or the fair value of the collateral if the loan is collateral-dependent. TDRs that have subsequently defaulted are considered
collateral-dependent. There were no TDRs that have subsequently defaulted which were restructured during 2011.

(continued)

27

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(4)

Premises and Equipment

A summary of premises and equipment follows (in thousands):

At December 31,

2011

2010

Land

$

1,171

$

1,171

Buildings and improvements

1,959

1,959

Furniture, fixtures and equipment

1,026

1,026

Leasehold improvements

119

119

Total, at cost

4,275

4,275

Less accumulated depreciation and amortization

(1,584

)

(1,479

)

Premises and equipment, net

$

2,691

$

2,796

The Company currently leases two branch facilities under operating leases. One lease
contains renewal options and requires the Company to pay an allowable share of common area maintenance and real estate taxes. The other lease only requires the Company to pay real estate taxes. Rent expense under operating leases during the years
ended December 31, 2011 and 2010 was $133,000 and $133,000, respectively. At December 31, 2011, the future minimum lease payments are approximately as follows (in thousands):

Year Ending December 31,

Amount

2012

$

84

2013

80

2014

88

2015

88

2016

88

Thereafter

170

$

598

(continued)

28

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(5)

Foreclosed Real Estate

Foreclosed real estate is presented net of an allowance for losses. An analysis of the allowance for
losses on foreclosed real estate is as follows (in thousands):

The aggregate amount of time deposits with a minimum denomination of $100,000, was approximately $30.2
million and $51.3 million at December 31, 2011 and 2010, respectively.

A schedule of maturities of time
deposits at December 31, 2011 follows (in thousands):

Year Ending December 31,

Amount

2012

$

58,025

2013

9,898

2014

1,408

2015

2,274

2016

237

$

71,842

(continued)

29

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(7)

Federal Home Loan Bank Advances and Junior Subordinated Debenture

The maturities and interest rates on the Federal Home Loan Bank (FHLB) advances were as
follows (dollars in thousands):

Maturity Year Ending December 31,

CallDate

InterestRate

At December 31,

2011

2010

2012

2012

4.75

%

$

4,000

$

4,000

2013

2012

3.64

7,500

7,500

2016



4.51

5,000

5,000

2016



4.65

8,000

8,000

2016



4.44

5,600

5,600

2017

2012

4.38

1,600

1,600

$

31,700

$

31,700

Certain of the above advances are callable by the FHLB starting in the year indicated.

At December 31, 2011 and 2010, the FHLB advances were collateralized by $10.2 million and $15.8 million,
respectively, of securities and by a lien on qualifying residential one-to-four family mortgage loans, commercial and multi-family real estate loans and second mortgage loans.

During the year ended December 31, 2010, the Company sold mortgage-backed securities and collateralized mortgage
obligations with a carrying value of $13.8 million in order to downsize and deleverage its balance sheet in order to increase the Banks regulatory capital ratios to comply with the Consent Order issued by the FDIC and OFR (see Note 14). The
proceeds from the sale of securities were used to prepay approximately $16 million in FHLB advances secured by these securities. The Company realized a loss from prepayment penalties of approximately $735,000.

On September 30, 2004, the Company issued a $5,155,000 junior subordinated debenture to an unconsolidated
subsidiary. The debenture has a term of thirty years. The interest rate was fixed at 6.4% for the first five years, and thereafter, the coupon rate floats quarterly at the three-month LIBOR rate plus 2.45% (2.97% at December 31, 2011). The
junior subordinated debenture, due in 2034, is redeemable in certain circumstances after October 2009. The terms of the debenture agreement allow the Company to defer payments of interest on the debenture by extending the interest payment period at
any time during the term of the debenture for up to twenty consecutive quarterly periods. During 2011 and 2010, the Company exercised its right to defer payment of interest on the debenture. Interest payments deferred as of December 31, 2011
and 2010 totaled $326,000 and $179,000, respectively.

(continued)

30

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(8)

Other Borrowings

Other borrowings consisted of securities sold under agreements to repurchase. The securities sold
under the agreements to repurchase were delivered to the broker-dealer who arranged the transactions. Information concerning the securities sold under agreements to repurchase is summarized as follows (dollars in thousands):

Year Ended December 31,

2011

2010

Balance at year end

$

0

$

0

Average balance during the year

$

0

$

7,558

Average interest rate during the year

0

%

4.24

%

Maximum month-end balance during the year

$

0

$

41,800

Securities held to maturity pledged as collateral

$

0

$

0

Cash pledged as collateral

$

0

$

0

During the year ended December 31, 2010, the Company sold mortgage-backed securities
and collateralized mortgage obligations with a carrying value of $29.6 million in order to downsize and deleverage its balance sheet in order to increase the Banks regulatory capital ratios to comply with the Consent Order issued by the FDIC
and OFR (see Note 14). The proceeds from the sale of securities were used to prepay approximately $41.8 million in reverse repurchase agreements secured by these securities. The Company realized a loss from prepayment penalties of approximately $3.0
million.

(9)

Financial Instruments

The estimated fair values of the Companys financial instruments were as follows (in thousands):

At December 31, 2011

At December 31, 2010

CarryingAmount

FairValue

CarryingAmount

FairValue

Financial assets:

Cash and cash equivalents

$

22,776

$

22,776

$

14,367

$

14,367

Securities held to maturity

100

100

51,057

48,839

Securities available for sale

28,907

28,907

0

0

Loans

89,217

89,069

113,542

113,513

Federal Home Loan Bank stock

2,159

2,159

3,173

3,173

Accrued interest receivable

499

499

644

644

Financial liabilities:

Deposit liabilities

107,895

108,461

148,238

148,929

Federal Home Loan Bank advances

31,700

33,920

31,700

33,425

Junior subordinated debenture

5,155

4,734

5,155

4,740

Off-balance sheet financial instruments

0

0

0

0

(continued)

31

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(9)

Financial Instruments, Continued

The Company is party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount
recognized in the consolidated balance sheet. The contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments.

The Companys exposure to credit loss in the event of nonperformance by the other party to the financial instrument
for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because some of the commitments are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Company evaluates each customers credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit, is
based on managements credit evaluation of the counterparty.

As of December 31, 2011, the Company
had no commitments to extend credit.

(10)

Credit Risk

The Company grants the majority of its loans to borrowers throughout Broward and portions of Palm
Beach and Miami-Dade Counties, Florida. Although the Company has a diversified loan portfolio, a significant portion of its borrowers ability to honor their contracts is dependent upon the economy in Broward, Palm Beach and Miami-Dade
Counties, Florida.

(continued)

32

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(11)

Income Taxes

Income taxes consisted of the following (in thousands):

Year Ended December 31,

2011

2010

Current:

Federal

$

41

$

(423

)

State

0

0

Total current

41

(423

)

Deferred:

Federal

(1,232

)

(2,191

)

State

(203

)

(446

)

Change in valuation allowance

1,435

3,409

Total deferred

0

772

Total

$

41

$

349

The reasons for the differences between the statutory Federal income tax rate and the
effective tax rate are summarized as follows (dollars in thousands):

Year Ended December 31,

2011

2010

Amount

% ofPretaxLoss

Amount

% ofPretaxLoss

Income tax benefit at statutory rate

$

(1,260

)

(34.0

)%

$

(2,755

)

(34.0

)%

Increase (decrease) resulting from:

State taxes, net of Federal tax benefit

(134

)

(3.6

)

(294

)

(3.6

)

Change in valuation allowance

1,435

38.7

3,409

42.1

Other

0

.0

(11

)

(.2

)

$

41

1.1

%

$

349

4.3

%

(continued)

33

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(11)

Income Taxes, Continued

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands).

At December 31,

2011

2010

Deferred tax assets:

Allowance for loan losses

$

71

$

434

Net operating loss carryforwards

5,919

4,933

Premises and equipment

109

92

Impaired securities

67

67

Foreclosed property expenses

442

14

Nonaccrual loan interest

298

0

Other

69

27

Gross deferred tax assets

6,975

5,567

Less: Valuation allowance

6,970

5,535

Net deferred tax assets

5

32

Deferred tax liabilities:

Loan costs

(4

)

(10

)

Prepaid expenses

(1

)

(22

)

Deferred tax liabilities

(5

)

(32

)

Net deferred tax asset

$

0

$

0

During the years ended December 31, 2011 and 2010, the Company assessed its earnings
history and trend over the past year and its estimate of future earnings, and determined that it was more likely than not that the deferred tax assets would not be realized in the near term. Accordingly, a valuation allowance was recorded and
maintained against the net deferred tax asset for the amount not expected to be realized in the future.

At
December 31, 2011, the Company had net operating loss carryforwards of approximately $14.7 million for Federal tax purposes and $25.6 million for Florida tax purposes available to offset future taxable income. These carryforwards will begin to
expire in 2029. These carryforwards are subject to an annual limitation going forward under Internal Revenue Code Section 382 which became applicable with the sale of common stock that occurred during 2011.

The Company files U.S. and Florida income tax returns. With few exceptions, the Company is no longer subject to U.S.
Federal or state and local income tax examinations by taxing authorities for years before 2008.

(continued)

34

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(12)

Related Party Transactions

The Company has entered into transactions with its executive officers, directors and their affiliates
in the ordinary course of business. There were loans to related parties at December 31, 2011 and 2010 of approximately $239,000 and $244,000, respectively. At December 31, 2011 and 2010, related parties had approximately $509,000 and
$975,000, respectively, on deposit with the Company.

(13)

Stock-Based Compensation

On December 27, 2011, the Companys stockholders approved the 2011 Equity Incentive Plan
(2011 Plan). A total of 2,200,000 shares of common stock are available to be issued under the 2011 Plan. Options, restricted stock, performance share awards and bonus share awards in lieu of obligations may be issued under the 2011 Plan.
Both incentive stock options and nonqualified stock options can be granted under the 2011 Plan. The exercise price of the stock options can not be less than the fair market value of the common stock on the date of grant. As of December 31, 2011
no equity instruments have been granted under the 2011 Plan.

The Company terminated its prior stock option
plan on February 27, 2011. At December 31, 2011, no options were available for grant under this plan. Options must be exercised within ten years of the date of grant.

A summary of the activity in the prior plan is as follows. All option amounts reflect the one-for-four reverse stock
split declared in October 2010 and the 5% stock dividend declared in May 2010 (dollars in thousands, except share amounts):

Number ofOptions

Weighted-AverageExercisePrice

Weighted-AverageRemainingContractualTerm

AggregateIntrinsicValue

Outstanding at December 31, 2009

104,989

$

28.52

Forfeited

(35,857

)

27.84

Outstanding at December 31, 2010

69,132

30.05

Expired

(18,232

)

18.16

Outstanding and exercisable at December 31, 2011

50,900

$

34.31

3.0 years

$

0

(continued)

35

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(14)

Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the regulatory banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and Banks financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts
and percentages (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). As of December 31, 2011, the
Bank did not meet the Tier 1 capital to total assets ratio as required in the Consent Order discussed below.

The Banks actual capital amounts and percentages are also presented in the table (dollars in thousands).

Actual

For CapitalAdequacy Purposes

MinimumTo Be WellCapitalized
UnderPrompt CorrectiveAction Provisions

Requirements ofConsent Order

Amount

%

Amount

%

Amount

%

Amount

%

As of December 31, 2011:

Total Capital to Risk-Weighted Assets

$

14,382

12.48

%

$

9,221

8.00

%

$

11,526

10.00

%

$

13,832

12.00

%

Tier I Capital to Risk-Weighted Assets

12,930

11.22

4,611

4.00

6,916

6.00

N/A

N/A

Tier I Capital to Total Assets

12,930

7.76

6,668

4.00

8,335

5.00

13,335

8.00

As of December 31, 2010:

Total Capital to Risk-Weighted Assets

$

9,639

6.70

%

$

11,513

8.00

%

$

14,392

10.00

%

$

17,270

12.00

%

Tier I Capital to Risk-Weighted Assets

7,817

5.43

5,757

4.00

8,635

6.00

N/A

N/A

Tier I Capital to Total Assets

7,817

4.02

7,786

4.00

9,733

5.00

15,572

8.00

(continued)

36

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(14)

Regulatory Matters, Continued

Regulatory Matters - Company. The Company is subject to
the supervision and regulation of the Board of Governors of the Federal Reserve System (the Federal Reserve). On June 22, 2010, the Company entered into a written agreement with the Federal Reserve Bank of Atlanta (Reserve
Bank) with respect to certain aspects of the operation and management of the Company (the Written Agreement).

The Written Agreement contains the following principal requirements:



The Board of the Company must take appropriate steps to fully utilize the Companys financial and managerial resources to serve as a source of
strength to the Bank, including, but not limited to, taking steps to ensure that the Bank complies with the Consent Order entered into with the OFR and the FDIC and any other supervisory action taken by the Banks state or federal regulator.



The Company may not declare or pay any dividends without prior Reserve Bank and Federal Reserve approval.



The Company may not, directly or indirectly, take dividends or any other form of payment representing a reduction in capital from the Bank without
prior Reserve Bank approval.



The Company and its nonbank subsidiary, OptimumBank Holdings Capital Trust I, may not make any distributions of interest, principal, or other sums on
subordinated debentures or trust preferred securities without the prior written approval of the Reserve Bank and the Federal Reserve.



The Company and its nonbank subsidiary, OptimumBank Holdings Capital Trust I, may not, directly or indirectly, incur, increase, or guarantee any debt
or purchase or redeem any shares of its stock without the prior written approval of the Reserve Bank.



The Company must obtain prior written consent from the Reserve Bank before appointing any new director or senior executive officer, or changing the
responsibilities of any senior executive officer so that the officer would assume a different senior executive officer position, and must comply with the regulations applicable to indemnification and severance payments.



The Company must provide quarterly progress reports to the Reserve Bank, along with parent company only financial statements.

(continued)

37

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(14)

Regulatory Matters, Continued

Regulatory Matters - Bank. Effective April 16, 2010,
the Bank consented to the issuance of a Consent Order by the FDIC and the OFR, also effective as of April 16, 2010.

The Consent Order represents an agreement among the Bank, the FDIC and the OFR as to areas of the Banks operations that warrant improvement and presents a plan for making those improvements. The
Consent Order imposes no fines or penalties on the Bank. The Consent Order will remain in effect and enforceable until it is modified, terminated, suspended, or set aside by the FDIC and the OFR.

The Consent Order contains the following principal requirements:



The Board of the Bank is required to increase its participation in the affairs of the Bank and assume full responsibility for the approval of sound
policies and objectives for the supervision of all of the Banks activities.



The Bank is required to have and retain qualified and appropriately experienced senior management, including a chief executive officer, a chief lending
officer and a chief financial officer, who are given the authority to implement the provisions of the Consent Order.



Any proposed changes in the Banks Board of Directors or senior executive officers are subject to the prior consent of the FDIC and the OFR.



The Bank is required to maintain both a fully funded allowance for loan and lease losses satisfactory to the FDIC and the OFR and a minimum Tier 1
leverage capital ratio of 8% and a total risk-based capital ratio of 12% for as long as the Consent Order remains in effect.



The Bank must undertake over a two-year period a scheduled reduction of the balance of loans classified substandard and
doubtful in its 2009 FDIC examination by at least 75%.



The Bank is required to reduce the volume of its adversely classified private label mortgage backed securities under a plan acceptable to the FDIC and
OFR.



The Bank must submit to the FDIC and the OFR for their review and comment a written business/strategic plan covering the overall operation of the Bank.



The Bank must implement a plan to improve earnings, addressing goals and strategies for improving and sustaining earnings, major areas for improvement
in the Banks operating performance, realistic and comprehensive budgets and a budget review process.

(continued)

38

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(14)

Regulatory Matters, Continued



The Bank is required to revise, implement and incorporate recommendations of the FDIC and OFR with respect to the following policies or plans:



Lending and Collection Policies



Investment Policy



Liquidity, Contingency Funding and Funds Management Plan



Interest Rate Risk Management Policy



Internal Loan Review and Grading System;



Internal Control Policy; and



A plan to reduce concentration in commercial real estate loans;



The Banks Board of Directors must review the adequacy of the allowance for loan and lease losses and establish a comprehensive policy
satisfactory to the FDIC and OFR for determining such adequacy at least quarterly thereafter.



The Bank may not pay any dividends or bonuses without the prior approval of the FDIC.



The Bank may not accept, renew or rollover any brokered deposits except with the prior approval of the FDIC.



The Bank is required to notify the FDIC and OFR prior to undertaking asset growth of 10% or more per annum while the Consent Order remains in effect.



The Bank is required to file quarterly progress reports with the FDIC and the OFR.

Management believes that the Bank is currently in substantial compliance with all the requirements of the Consent Order
except for the following requirements:



Maintenance of a Tier 1 leverage capital ratio of 8%;



Scheduled reduction by October 31, 2011 of 60% of loans classified as substandard and doubtful in the 2009 FDIC Examination;



Retention of a qualified chief executive officer; and



Development of a plan to reduce Banks concentration in commercial real estate loans acceptable to the supervisory authorities.

The Company conducted a private placement offering of its common stock intended to result
in the Bank attaining the capital ratios required by the Consent Order. The Bank met the total risk-based capital requirement of 12% at December 31, 2011. However, as of December 31, 2011, the Banks Tier 1 leverage ratio of 7.76% is
below the required ratio of 8%. The Company is in the process of raising sufficient capital to enable the Bank to comply with the 8% Tier 1 leverage ratio requirement (See Note 19). However, there can be no assurance, that the Company will raise
sufficient capital for the Bank to achieve and maintain material compliance with these ratios.

The Bank has
implemented comprehensive policies and plans to address all of the requirements of the Consent Order and has incorporated recommendations from the FDIC and OFR into these policies and plans.

(continued)

39

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(15)

Dividends

The Company is limited in the amount of cash dividends that may be paid. Banking regulations place
certain restrictions on dividends and loans or advances made by the Bank to the Holding Company. The amount of cash dividends that may be paid by the Bank to the Holding Company is based on the Banks net earnings of the current year combined
with the Banks retained earnings of the preceding two years, as defined by state banking regulations. However, for any dividend declaration, the Company must consider additional factors such as the amount of current period net earnings,
liquidity, asset quality, capital adequacy and economic conditions. It is likely that these factors would further limit the amount of dividends which the Company could declare. In addition, bank regulators have the authority to prohibit banks from
paying dividends if they deem such payment to be an unsafe or unsound practice. At December 31, 2011, the Bank and Holding Company could not pay cash dividends (See Note 14).

(16)

Contingencies

Various claims also arise from time to time in the normal course of business. In the opinion of
management, none have occurred that will have a material effect on the Companys consolidated financial statements.

(17)

Simple IRA

The Company has a Simple IRA Plan whereby substantially all employees participate in the Plan.
Employees may contribute up to 15 percent of their compensation subject to certain limits based on federal tax laws. The Company makes matching contributions equal to the first 3% of an employees compensation contributed to the Plan. Matching
contributions vest to the employee immediately. For the years ended December 31, 2011 and 2010, expense attributable to the Plan amounted to $38,000 and $35,000, respectively. The Companys Simple IRA Plan was terminated effective
January 1, 2012.

(continued)

40

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(18)

Fair Value Measurement

Impaired collateral-dependent loans are carried at fair value when the current collateral value is
lower than the carrying value of the loan. Those impaired collateral-dependent loans which are measured at fair value or a nonrecurring basis are as follows (in thousands):

At December 31, 2011

LossesRecorded
inOperationsFor theYear
EndedDecember 31,2011

FairValue

Level 1

Level 2

Level 3

TotalLosses

Residential real estate-

Closed-end first mortgages

$

1,591

$

0

$

0

$

1,591

$

545

$

308

Commercial real estate:

Owner-occupied

291

0

0

291

8

8

Non-owner-occupied

6,540

0

0

6,540

2,652

150

Land and construction

6,793

0

0

6,793

1,511

834

$

15,215

$

0

$

0

$

15,215

$

4,716

$

1,300

At December 31, 2010

LossesRecorded inOperationsFor theYear EndedDecember 31,2010

FairValue

Level 1

Level 2

Level 3

TotalLosses

Residential real estate-

Closed-end first mortgages

$

4,136

$

0

$

0

$

4,136

$

561

$

561

Commercial real estate:

Owner-occupied

70

0

0

70

20

20

Non-owner-occupied

8,893

0

0

8,893

2,583

1,857

Land and construction

7,231

0

0

7,231

1,815

1,363

$

20,330

$

0

$

0

$

20,330

$

4,979

$

3,801

Foreclosed real estate is recorded at fair value less estimated costs to sell. Foreclosed
real estate which is measured at fair value on a nonrecurring basis is as follows (in thousands):

At Year End

TotalLosses

LossesRecordedDuring theYear

FairValue

Level 1

Level 2

Level 3

At December 31, 2011

$

7,646

$

0

$

0

$

7,646

$

772

$

772

At December 31, 2010

$

3,215

$

0

$

0

$

3,215

$

0

$

0

(continued)

41

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(19)

Stockholders Equity

The Companys board of directors authorized a one-for-four reverse stock split on
October 18, 2010, which became effective on November 5, 2010, with fractional shares rounded up to the next largest whole share. As part of the reverse stock split, the Company amended its Articles of Incorporation on November 5,
2010, to ratably decrease the number of common shares authorized from 6,000,000 shares to 1,500,000 shares. On September 29, 2011, the Company amended its Articles of Incorporation to increase the number of common shares authorized from
1,500,000 shares to 50,000,000 shares.

Common Stock Offering and Purchase Agreement. The
Company completed a private placement offering of its common stock in 2011, and sold 21,591,750 shares of common stock for net proceeds of $8.6 million. All of the proceeds were invested in the Bank.

The Company also entered into a binding stock purchase agreement with Company director Moishe Gubin (Gubin)
on October 25, 2011, amended on December 5, 2011, under which Gubin agreed to purchase, subject to certain conditions, for $2.7 million in cash, 6,750,000 newly issued common shares of the Company. The closing of this transaction is
subject to regulatory approval from the Federal Reserve and the OFR. The stock purchase agreement may be terminated by the Company or Gubin if the closing does not occur by June 30, 2012, but not by either party whose failure to perform any
obligations under the agreement required to be performed on or prior to such date has been the cause of, or results in, the failure of the transaction to close on or before such date.

If the transaction with Gubin is consummated, it is anticipated that substantially all the proceeds would be invested in
the Bank and the Bank would exceed the ratios imposed under the Consent Order. There can be no assurance, however, that the transaction with Gubin will be consummated, or that the Company will be able to raise sufficient capital in the transaction
to meet the Banks capital requirements under the Consent Order.

Registration Rights. In
connection with the private placement offering and the transaction with Gubin, the Company has agreed to grant each purchaser of common stock certain registration rights. The Company filed a registration statement on Form S-3 on February 15,
2012, registering the resale of the registrable securities, and is required to use reasonable best efforts to make such registration statement become effective. The Company is required to maintain this registration statement continuously in effect
until all such shares have been sold or become eligible for sale without restriction under Rule 144 promulgated under the Securities Act of 1933. The registration rights are subject to the right of the Company to delay registration to avoid
disclosure of material nonpublic information. The holder of registrable securities must comply with certain standard provisions facilitating the filing and effectiveness of the registration statement as well.

(continued)

42

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(20)

Holding Company Financial Information

The Holding Companys unconsolidated financial information as of December 31, 2011 and 2010
and for the years then ended follows (in thousands):

Condensed Balance Sheets

At December 31,

2011

2010

Assets

Cash

$

46

$

172

Investment in subsidiary

11,992

7,817

Other assets

230

180

Total assets

$

12,268

$

8,169

Liabilities and Stockholders Equity

Other liabilities

$

327

179

Junior subordinated debenture

5,155

5,155

Stockholders equity

6,786

2,835

Total liabilities and stockholders equity

$

12,268

$

8,169

Condensed Statements of Operations

Year Ended December 31,

2011

2010

Loss of subsidiary

$

(3,473

)

$

(8,195

)

Interest expense

(148

)

(144

)

Other expense

(126

)

(114

)

Loss before income taxes

(3,747

)

(8,453

)

Income taxes

0

0

Net loss

$

(3,747

)

$

(8,453

)

(continued)

43

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(20)

Holding Company Financial Information, Continued

Condensed Statements of Cash Flows

Year Ended December 31,

2011

2010

Cash flows from operating activities:

Net loss

$

(3,747

)

(8,453

)

Adjustments to reconcile net loss to net cash used in operating activities:

Equity in undistributed loss of subsidiary

3,473

8,195

Increase in other assets

(50

)

0

Increase in accrued other liabilities

148

144

Net cash used in operating activities

(176

)

(114

)

Cash flow from investing activity-

Investment in subsidiary

(8,586

)

0

Cash flows from financing activity-

Proceeds from sale of common stock, net

8,636

0

Net decrease in cash

(126

)

(114

)

Cash at beginning of the year

172

286

Cash at end of year

$

46

172

Noncash transactions:

Change in accumulated other comprehensive loss of subsidiary, net change in unrealized loss on securities available for
sale